Travelers 2012 Annual Report Download - page 214

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. GOODWILL AND OTHER INTANGIBLE ASSETS (Continued)
Other Intangible Assets
The following presents a summary of the Company’s other intangible assets by major asset class at
December 31, 2012 and 2011:
Gross
Carrying Accumulated
(at December 31, 2012, in millions) Amount Amortization Net
Intangibles subject to amortization
Customer-related(1) ....................................... $455 $383 $ 72
Fair value adjustment on claims and claim adjustment expense reserves
and reinsurance recoverables(2) ............................. 191 98 93
Total intangible assets subject to amortization ................... 646 481 165
Intangible assets not subject to amortization ..................... 216 — 216
Total other intangible assets ................................ $862 $481 $381
Gross
Carrying Accumulated
(at December 31, 2011, in millions) Amount Amortization Net
Intangibles subject to amortization
Customer-related ......................................... $ 935 $830 $105
Fair value adjustment on claims and claim adjustment expense reserves
and reinsurance recoverables(2) ............................. 191 79 112
Total intangible assets subject to amortization ................... 1,126 909 217
Intangible assets not subject to amortization ..................... 216 — 216
Total other intangible assets ................................ $1,342 $909 $433
(1) Certain intangible assets related to renewal rights became fully amortized during the first quarter
of 2012.
(2) The fair value adjustment of $191 million was recorded in connection with the merger of The
St. Paul Companies, Inc. and Travelers Property Casualty Corp. in 2004 and was based on
management’s estimate of nominal claims and claim adjustment expense reserves and reinsurance
recoverables. The method used calculated a risk adjustment to a risk-free discounted reserve that
would, if reserves ran off as expected, produce results that yielded the assumed cost-of-capital on
the capital supporting the loss reserves. The fair value adjustment is reported as an other
intangible asset on the consolidated balance sheet, and the amounts measured in accordance with
the acquirer’s accounting policies for insurance contracts have been reported as part of the claims
and claim adjustment expense reserves and reinsurance recoverables. The intangible asset is being
recognized into income over the expected payment pattern. Because the time value of money and
the risk adjustment (cost of capital) components of the intangible asset run off at different rates,
the amount recognized in income may be a net benefit in some periods and a net expense in other
periods.
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